Please ensure Javascript is enabled for purposes of website accessibility

Why Summit Materials Stock Soared Today

By Matthew DiLallo – Jun 13, 2019 at 5:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The M&A-minded materials maker seems to have caught the eye of a potential suitor.

What happened

Shares of Summit Materials (SUM 2.61%) took off on Thursday, closing more than 14% higher on the day. Driving up the cement and aggregate-material producer's stock price was a report that a Colombian company was interested in a potential merger.

So what

Reuters reported that Colombian industrial conglomerate Groupo Argos had approached Summit Materials about a merger. The company would combine its subsidiary Cementos Argos with Summit in a deal to bolster its U.S. footprint. A transaction would create a larger-scale materials company that would have a stronger competitive footprint in the U.S. concrete and aggregates market.

A materials pile with sunburst in the background.

Image source: Getty Images.

Summit Materials is no stranger to mergers and acquisitions (M&A) activity, having completed 70 deals throughout its history. However, CEO Tom Hill did state on the company's recent first-quarter conference call that, "with respect to acquisitions, our pipeline has slowed a bit." That's due, in part, to "our leverage," which is leading the company to be "very cautious in our acquisition spend." That lack of acquisition prospects, as well as the firepower to make deals, seems to have made Summit an attractive acquisition candidate for the deeper-pocketed Groupo Argos.

Now what

It's unclear if an agreement between these two companies will materialize. Because of that, Summit Materials could quickly give back today's gains if the talks don't go anywhere, especially since the company has a large debt load that's currently weighing it down. Given that skewed risk-reward, investors shouldn't chase this stock.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Summit Materials, Inc. Stock Quote
Summit Materials, Inc.
$24.74 (2.61%) $0.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.